Realty Works Inc

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Perhaps a plain English definition of Gross Profit will give you a better perspective of it's importance to managing your business. Gross Profit is the amount left over after paying all of the costs of making a sale. If you do not review and understand these costs on a regular basis, you are dramatically limiting your ability to succeed. Over the past several years, I have personally analyzed over 300 small businesses with annual sales from a hundred thousand to several million dollars. These companies are located from as far west as Texas, as far north as Nova Scotia, south to Florida and all along the Atlantic coast . I've found that over 90% have the same basic problems, but the most common and most serious is ownerships failure to develop an accurate Gross Profit number. Most owners are technically sound in their particular trade or industry, but few have had any formal business training. They can build a fine house, repair your computer network, rebuild the engine in your car, prepare your tax return and even cure your cold, but all would be considered entrepreneurs, not business experts. Note that I included accountants. Although being good with numbers is important, it doesn't necessarily lead to business success. If you're depending on your accountant for more than tax guidance, you may be expecting more than he or she has to give. I have met with many, many accountants and I have yet to meet one that actually knew the accurate Gross Profit of their own practice. Oh sure, your financials (income statement, or profit and loss statement) probably include an amount for Gross Profit, but it has been my experience that it is rarely accurate. In fact, less than 2% of the statements that I've reviewed are within 5% of what the true number should be. In a million dollar company, that's a difference of more than $50,000.00. Often, I've found differences of 20% or more. If you are like the vast majority of small business owners, Gross Profit is one of those in-between numbers that you simply ignore. When (if) you look at your numbers, your eyes probably move from the top line (sales), directly to the bottom line (net profit). And, unfortunately, most owners figure that if the bottom line is inadequate, it's primarily because the top line wasn't big enough. Not necessarily !

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